Merck shares dove after multiple firms downgraded the company, citing delays in lung cancer trial results and a withdrawal of the company's application to market oncology drug Keytruda for lung cancer in the European Union.

The company announced Friday after the closing bell that it was pulling its application, a decision analysts at SunTrust Robinson Humphrey deemed "troubling." Keytruda received accelerated approval from the Food and Drug Administration for treatment of non-small cell lung cancer in May, but analyst John Boris suggested that Merck may be holding off overseas until U.S. regulators get a better sense of trial data from research studies known as "Keynotes."

Boris said the withdrawal signals that regulators aren't comfortable with the drug.

"The delay also shaves off valuable time for Merck to establish itself as the immune-oncology standard-of-care in first-line non-small cell lung cancer patients," he said.

Company spokesperson Pamela Eisele told CNBC in an email said Merck has "a number of ongoing studies" for the drug. "We look forward to sharing future study findings and remain committed to working with the (European Medicines Agency) to bring new treatment regimens to patients who urgently need new options," she said.

Eisele added that the company plans to submit a new application to the EU once additional data in its patient population is available.

Opdivo and Keytruda belong to a new class of drugs called PD-1 inhibitors, which work by blocking a mechanism tumors use to avoid the immune system.

Boris cut his Merck price target to $54 from $73, representing 7 percent downside from Friday's close. He also cut his fiscal 2018 earnings per share estimate to $4.07 from $4.12.

Morgan Stanley also downgraded the company to equal weight on the Keytruda delays and cut earnings expectations.

"We and consensus had expected a delay, but not of that duration," wrote Morgan Stanley analyst David Risinger in a note to clients. He said Merck shares likely will not outperform until the drug tests successfully, and could face pressure from competitors coming online.

"Our prior thesis had assumed that Keytruda could drive better than expected growth over the intermediate term," wrote Meacham. "We see less upside potential for Keytruda sales in lung cancer, the biggest immuno-oncology market. We don't think this means that immuno-oncology rivals will leapfrog Merck, but both Bristol and Roche could have front-line non-small cell lung cancer data in late 2017/early 2018 that could further weigh on sentiment."

"Investors are looking at a Merck notification that they're withdrawing their filing as a sign that somehow their ongoing Phase III trial has a problem and that perhaps Merck and the European regulatory agency perhaps looked into that Phase III trial and there's some issue with that trial. I don't think that's the case," said Raffat.

"There's actually a notification from the European regulators directly to Merck which talks about some very specific issues that neither of those allude to beyond the ongoing Phase III. So I think the ongoing Phase III is unaffected by these updates and we actually do get interim data from this ongoing Phase III by, mid-2018 potentially, which isn't what investors are talking about."